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Bloomberg

The yen rebounded from its weakest level since 2008 versus the euro as demand for safer assets revived after Japan’s economy unexpectedly sank into recession.

The Japanese currency was little changed versus the dollar, rising from a seven-year low, as stock markets around the world slumped and a gauge of momentum used by some traders signaled the yen was poised to rally. New Zealand’s dollar rose against its major peers after retail sales increased. The Swiss franc strengthened to within 0.1 percent of its 1.20-per-euro cap.

“The yen rallied back sharply,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “Dollar-yen has gone north for quite a long period of time and at quite a speed. But does it change the ultimate direction? Probably not.”

The yen appreciated 0.3 percent to 145.30 per euro at 7:21 a.m. New York time, after earlier touching 146.53. Japan’s currency was little changed versus the dollar at 116.28 yen, having reached 117.05, the weakest level since October 2007. The dollar rose 0.3 percent to $1.2489 per euro.

Economy Contracts

Japan’s economy shrank an annualized 1.6 percent in the third quarter, after contracting a revised 7.3 percent in the previous three months. Economists surveyed by Bloomberg News predicted an expansion of 2.2 percent. Etsuro Honda, an aide to Prime Minister Shinzo Abe, has said proceeding with another tax increase next year would be out of the question if growth is less than 3.8 percent.

The yield spread between Japanese and U.S. 10-year bonds narrowed to 181 basis points, the least since Oct. 27.

“It is an overwhelmingly negative report and certainly confirms the market’s idea that the sales tax will be pushed back,” said Raiko Shareef, a markets analyst at Bank of New Zealand Ltd. in Wellington. “The dollar has come quite a long way in a long time. There are some solid offers there at 117 yen.”

The yen also rallied as its 14-day relative strength index against both the dollar and euro remained below the 30 level that some traders see as an indicator the currency is poised to strengthen. Japan’s Topix equities index dropped 2.5 percent.

Tax Delay

Abe will hold a news conference tomorrow to express his intention to delay the sales-tax increase and dissolve the lower house, Yomiuri newspaper reported, without saying who provided the information.

The yen has tumbled about 6 percent against the dollar since Oct. 30 after the Bank of Japan surprised investors the following day with further currency-depreciating stimulus, known as quantitative easing, and the government announced pension reforms that allow more money to flow abroad.

“While this does not necessarily confirm a snap election, it almost certainly confirms the economy can’t weather another consumption tax hike,” Geoffrey Yu, a London-based senior currency strategist at Switzerland’s biggest bank, UBS AG, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “The reaction in dollar-yen says, what next and do we need more QE?”

The dollar weakened as Westpac Banking Corp. said traders are starting to see positive economic surprises as a chance to sell the U.S. currency.

Wagers by hedge funds and other large speculators on the greenback’s strength versus eight of its major peers exceeded bets it will weaken by a record 372,558 on Nov. 11, according to the Washington-based Commodity Futures Trading Commission.

“The U.S. dollar’s failure to sustain rallies on decent economic data is definitely a warning sign for the dollar bull,” said Sean Callow, a currency strategist at Westpac in Sydney.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.2 percent to 1,095.11, reversing its 0.2 percent decline on Nov. 14.

Kiwi Advances

The New Zealand dollar rose against all except one of its 16 major peers after Statistics New Zealand said retail sales increased 1.5 percent in the third quarter. Economists surveyed by Bloomberg predicted a gain of 0.8 percent.

The kiwi was little changed at 79.15 U.S. cents after reaching 79.75 cents, the strongest since Oct. 29.

A U.S.-kiwi exchange rate in the “mid-to-high 70s” is sustainable for the economy to help moderate business cycles, New Zealand Finance Minister Bill English said yesterday in an interview with Bloomberg Television in Brisbane.

Switzerland’s franc was little changed at 1.20142 per euro amid speculation the nation’s central bank will intervene to stop its currency from strengthening further.

The Swiss National Bank introduced the ceiling on the franc’s value in September 2011 after an investor exodus from euro assets during the sovereign-debt crisis pushed it close to parity with the common currency.

The cap has recently come under pressure as a referendum on the SNB’s gold holdings and stimulus measures by the European Central Bank prompted speculation policy makers may struggle to defend the level. It appreciated to 1.20108 per euro today, the closest to the cap since September 2012, when the central bank last intervened to defend it.

“We think the SNB stands ready to intervene in significant size, although we don’t think the amounts comparable with the 2012 intervention will be needed in the near term,” strategists at Nomura International Plc, including Jordan Rochester, wrote in an e-mailed note dated Nov. 14. “On a six-month horizon, we view the floor as credible, but SNB interest-rate action may be required to avoid the need for more permanent FX intervention.”